Understanding the Health Care Reform Act

Chapter 7

Managed Care

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Learning Objectives

•  Define a health maintenance organization (HMO) •  Describe the four main activities of health plans •  List the five types of health plans and their characteristics •  Describe the forces that influenced the development of

integrated delivery systems •  Describe some of the methods by which providers are paid

by health plans •  Describe how managed-care organizations (MCOs)

establish their prices •  Discuss legal and regulatory issues that affect MCOs

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Figure 7–1 Health Care Insurance Market

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Four Health Plan Activities •  Underwriting

–  HP’s receive premiums from buyers and make payments to providers

•  Utilization Review –  Medical necessity –  Case management

•  Claims Administration –  Validate coverage and payment terms –  Coordination of benefit

•  Marketing

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Major Types of Health Plans •  Health Maintenance Organization

–  Staff Model –  Group Model –  Individual Practice Association (IPA) Model –  Network Model

•  Conventional/Indemnity Plans •  Point of Service (POS) Plans

–  Hybrid HMO •  Preferred Provider Organization (PPO) Plans

–  Similar to HMO with POS option •  High Deductible Health Plans with Savings Options Plans

–  HSA’s

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Integrated Delivery Systems (IDS)

•  “A strategic alliance among doctors, hospitals, and other ancillary providers to deliver care to a defined population.”

•  An IDS may vary in the nature of services

provided. Some have developed their own health plans. – Sentara Health System in Norfolk

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Factors Creating IDS Growth

•  Payer Negotiation –  Fewer payers drive providers to integrate

•  Outpatient Service Growth •  Integrate Data Systems

–  Electronic Health Record •  Productivity

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Control Alternatives for IDS

•  Physician Hospital Organization (PHO) – with physician organization – without physician organization

•  Medical Service Organization (MSO) •  Physician Organizations (POs)

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Paying Providers in an IDS

•  Capitation – Payment usually per member per month (PMPM) – Benefits covered must be defined

•  Salary/Budget – Only when providers are owned by IDS

•  Fee for Service – Payment related to utilization – No risk for utilization variances

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– Usually associated with fee for service payment – Additional payments result when utilization is

below budget

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Witholds and Risk pools

Setting a Capitated Price

•  PMPM is the rate •  PMPM = Expected encounters per year

X Cost per encounter 12

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Factors to Consider in Setting PMPM Rates

•  What set of services are included? •  Should stop loss coverage be purchased? •  What provisions for adverse selection should be

included? •  How to capture “incurred but not

reported” (IBNR) liabilities.

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Legal and Regulatory Issues

•  Antitrust –  Price fixing

•  Increment –  “Commercially reasonable”

•  Licensure as an Insurer –  Is an IDS required to be licensed as an HMO?

•  Incentives to reduce services by physicians •  Intentional torts

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